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The IGC raises two bright red flags about world grain

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The European Commission’s directorate general of agriculture in its ‘Commodity Price Data’ 2012 August edition contains this chart on ‘cereals/bread and cereals-based products’ that their EU agricultural market and consumer price developments (this shows 2000 January to 2012 August data with the starting month representing the 100 of the index). This chart shows barley (the blue line) is at or near the 2007 peak and maize (the green line) is above the 2007 peak.

The Grain Market Report for 2012 October released a few days ago by the International Grains Council (IGC) makes two extremely important prognoses.

IGC’s 2012 October total grains chart

These two forecasts will have an immediate effect on grains prices as they are traded in the agricultural commodities markets through the winter season of 2012-13, and I expect we will see the effects in the major indices that describe the movements of food and of food prices – the FAO food price index, the World Bank ‘pink sheet’, the IMF commodity prices index, Unctad’s long-running series on agricultural commodities, and of course the various exchanges-based indices (DJ, CBOT, NYSE LIFFE and so on).

The IGC has cut a further 6 million tons (mt) from the 2012-13 forecast for total global grains production, which is now expected to be 5% lower year on year, at 1,761 mt. The decline includes 39 mt of wheat, 46 mt of maize, and 4 mt of barley. “Reduced availabilities and higher prices are expected to ration demand, resulting in the first year on year fall in grains consumption since 1998-99,” said the IGC in this month’s report.

IGC’s 2012 October wheat and rice charts

It is worth making the connection that the United States Department of Agriculture (USDA) in its recent ‘Wheat Outlook’, released on 2012 October 15 by the Economic Research Service, had said that global wheat production in 2012-13 is projected to reach 653.0 million tons, down 5.7 million tons this month (that is, 2012 October). The USDA’s 2012 October Wheat Outlook had said the “largest change this month is a 3.0-million-ton cut in projected wheat production in Australia to 23.0 million” and had added that “projected wheat production in Russia continues its decline as the wheat harvest gets closer to its end and projections for abandoned wheat area get higher, reaching 12% of planted area”. About the European Union (EU-27) wheat production for 2012-13 the USDA Wheat Outlook had reduced it 0.8 million tons to 131.6 mt, mostly because of a significant reduction for the United Kingdom (UK) (down 0.8 million tons to 14.0 million).

The IGC forecasts show a further tightening in the balance this month, with 2012-13 end-season total grains  stocks revised down by 4 mt to 328 mt (it was 372 mt the previous year), the lowest since 2007-08 – and we all remember well the global food price increases that set in during the 2007-08 season, and how the spikes of that period were quickly replaced from mid-2010 onwards by the sustained high plateau of food prices.

“Inventories for the major exporters will be even tighter and the smallest for 17 years,” the IGC has said in its 2012 October Report. The global year on year decline is forecast to come from a 24 mt reduction in wheat, an 18 mt decline in maize, and a 1 mt drop in other coarse grains, notably barley. Global grains trade is expected to fall by 19 mt from last year’s high, to 249 mt, with a particularly steep decline for wheat – down by 13 mt year on year, largely due to a forecast reduction in EU feed wheat imports against the backdrop of tight Black Sea supplies. (Also please see the European Commission’s directorate general of agriculture’s ‘Commodity Price Data’ 2012 August edition.)

Written by makanaka

October 28, 2012 at 20:44

Grain and poverty, Russia and India, yet another UN talkfest, and those damned bankers

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Many young male adults have left their villages in search of subsistance means after the poor raining season in 2009 prevented them from harvesting. In the village of Garin Dagabi, north of Tanout in Southern Niger, the population at the beginning of 2010 was mainly made of old people, women and children. Photo: © Anne Isabelle Leclercq/IRIN

Many young male adults in Southern Niger have left their villages in search of subsistance means after the poor raining season in 2009 prevented them from harvesting. Anne Isabelle Leclercq/IRIN

At the United Nations headquarters in New York, USA, a large gathering of country representatives and other interested folks is the signal that another interminable, obfuscatory, filibustering, mostly spineless and generally pointless meeting is under way.

It is called the 19th Session of the UN Commission on Sustainable Development. The well-coiffeured ladies, impeccably suited gentlemen, minor potentates and ‘development’ celebrities there will be arguing endlessly about the grammar and construction of the declarations they finalise so as to ensure that no-one commits to anything and that they all meet again as soon as possible to check on their progress at doing nothing noisily.

Naturally, they are beatifically unconcerned about nuisances such as rising food prices and crippling food inflation all over the world. If you want to punish yourself by wading through portentous paragraphs of high-minded gibberish, and get a taste of the UN’s legendary core competency – wasting our money on pomp and prolix puffery – go here.

Now that we can see the difference between the posers at UN HQ and the rest of the toiling masses, here are some indicators of the way the world food, agriculture and prices are moving in the summer of 2011.

Agriculture in Africa. Photo: FAOThe Wall Street Journal has said that expectations of surplus grain in Russia and India are driving speculation that the two producers might resume exports, as wheat prices soar. But deteriorating prospects for US and European wheat crops mean even the return of exports from Russia and India to world markets this year would be unlikely to lower prices.

Grain dealers in Russia are starting to move stocks to ports in the hope that the government will allow exports as early as July. The Kremlin banned exports last year after the worst drought in a century slashed Russia’s grain harvest by about a third to about 63 million metric tons, but hopes that farmers may reap as much as 90 million tons this year have prompted calls for an end to the embargo.

Even if the exports from these producers happen, said the WSJ report, they are unlikely to make up for a fall in output in the US and Europe. The impact of weather on wheat supplies has been fueling prices for the past 10 months, with the latest concerns about dryness stressing crops in the ground and excessive rainfall hindering planting in the world’s two largest exporters. Wheat prices have rallied more than 60% on the Chicago Board of Trade since June 30.

Thou Market, southern Sudan. Across the Sahel, women generate income from balanites seeds, which are about half oil and a third protein. After processing at home, they can be turned into many tasty items, including roasted snacks and a spread not unlike peanut butter. They also supply a vegetable oil that is a prized ingredient in foods as well as in local cosmetics. (From 'Lost Crops of Africa: Volume III: Fruits', The National Academies Press. Photo: Caroline Gullick)

Thou Market, southern Sudan. Across the Sahel, women generate income from balanites seeds, which are about half oil and a third protein. After processing at home, they can be turned into many tasty items, including roasted snacks and a spread not unlike peanut butter. They also supply a vegetable oil that is a prized ingredient in foods as well as in local cosmetics. (From 'Lost Crops of Africa: Volume III: Fruits', The National Academies Press. Photo: Caroline Gullick)

World rice production is forecast to rise 3% this year, according to a Bloomberg report quoting the FAOs’ Rice Market Monitor. This is based on expected better weather and government support for farmers. The 2011 rice harvest is estimated to climb to 720 million metric tons from 699 million tons, or 480 million tons on a milled basis compared with 466 million tons a year earlier, the FAO has said in report. Price gains for rice, a staple for half the world, have trailed those of other grains. Thai grade-B white rice has gained 6% in the past 12 months, compared with a 56% gain for Chicago wheat prices.

A business report in the Huffington Post highlights the conclusions of a very readable piece of journalism in the magazine Foreign Policy (written there by Frederick Kaufman). The primary danger of the indexes is that they fundamentally alter the food market by transforming key stapes into a financial asset that performs more or less like a stock. “The money tells the story,” the Foreign Policy article explained. “Since the bursting of the tech bubble in 2000, there has been a 50-fold increase in dollars invested in commodity index funds. To put the phenomenon in real terms: In 2003, the commodities futures market still totaled a sleepy $13 billion. But when the global financial crisis sent investors running scared in early 2008, and as dollars, pounds, and euros evaded investor confidence, commodities — including food — seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash… In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was roiling the markets. Food inflation has remained steady since.”

In a report titled ‘Food Price Hike Worsens Poverty in Asia’, IPS news has reported that an annual meeting of Asian finance ministers and central bank governors in Hanoi is set to address the fate of 64 million people in the region on the brink of extreme poverty. They are the worst affected by soaring food prices, which have hit record highs in the first two months of this year. “The issue of food price inflation and food security will indeed be one of the key topics of discussion at the Asian Development Bank’s 44th annual meeting,” says Xianbin Yao, director general of the regional and sustainable development department at the Manila-based international financial institution. “(We hope) to focus our discussions on the long term structural adjustments that are needed to secure food supplies.

“If left unchecked, the food crisis will badly undermine the recent gains in poverty reduction made in Asia,” he said in an interview to IPS. “We estimate that a 10% rise in domestic food prices in developing Asia could push an additional 64 million people into poverty, based on the 1.25 (dollar) a day poverty line.” In a report released ahead of the annual meeting in the Vietnamese capital, to be held May 3-6, the Asian Development Bank (ADB) warned that this ascent of prices among many Asian food staples is “likely to continue” a threat to the continent’s nearly two billion people who live on less than two dollars a day.

Early price indicator for 2011 foodgrain

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Agrimoney has reported that London wheat for January delivery hit £198.40 a tonne on Thursday, beating the previous record for a spot contract of £197.50 a tonne set in September 2007.

“The peak came despite an uncertain performance by Chicago wheat, the global benchmark, which dipped in and out of negative territory in thin pre-holiday trade, and after disappointing US weekly export sales data. However, in London, prices continued to be boosted by data showing a doubling in UK wheat shipments in 2010-11, at a time when domestic demand has been lifted too by fresh capacity at plants converting the grain into ethanol.”

The buying was reflected too in wheat prices in Paris, where the January contract touched a two-year high of E250.00 a tonne, a two-year high and a “big psychological level for many in the market”, according to a grains analyst Agrimoney spoke to.

The market was finding that, despite the rises in prices of more than 80% in Paris since June, and more than 90% in London, “demand for wheat, and in particular milling quality wheat, has simply not been rationed”. And fundamentals both inside and outside the European Union “seem to offer little hope for a half to further price increases.

On 20 December, Reuters had reported (this is via Futurespros) that Chicago wheat futures rose more than 1 percent on Monday, taking the monthly gains to around 18% as weather concerns in top exporters United States and Australia continued to underpin the market.

“Chicago Board of Trade March wheat rose 1.45% to $7.64 a bushel.  CBOT front-month wheat has risen nearly 18% so far in December, the biggest monthly gains since July when the grain market jumped more than 40% as a severe drought ravaged crops across the Black Sea region. CBOT wheat is on track to post its first annual gain in three years after dropping 42% in the past two years, helped by a drought which decimated the Russian crop and halted exports and rains which reduced the quality of Australian wheat.”

Written by makanaka

December 24, 2010 at 11:19